House Votes to Shore Up Ailing Farm Credit System

Acting in a crisis atmosphere, the House voted Tuesday to shore up the financially ailing Farm Credit System with new self-help authority and backup federal aid that eventually could total billions of dollars.

The emergency package, approved 393 to 32 in a hurry-up procedure allowing no amendments and limiting debate, was almost identical to a bill passed by the Senate last week. House and Senate conferees are expected to work out differences quickly so that a compromise version can be sent to President Reagan--perhaps as early as this weekend--before Congress takes a long holiday break,

At the same time, another set of Senate and House negotiators continued work on massive legislation revamping farm subsidy programs. The Reagan Administration, seeking cuts in dairy price supports and in the income subsidies paid directly to grain farmers, has threatened a veto unless three-year subsidy costs in the bills are brought close to $50 billion. The House version costs $56 billion, the Senate version $58 billion.

In an emotional speech before the vote on the farm credit bill, House Agriculture Committee Chairman Kika de la Garza (D-Tex.) responded to critics of expedited action by saying that the credit system and its 88,000 farmer-borrowers were “running out of time.”

He observed: “Time ran out yesterday for Dale Burr,” a financially troubled Iowa farmer who committed suicide after killing his wife, his banker and another farmer to whom he reportedly owed money.

The Farm Credit System, a sprawling network of banks that holds one-third of the nation’s $212 billion of farm debt, is suffering its first losses in history. It has requested a $6-billion line of federal credit to bolster investor confidence and to hold down interest rates on loans to farmers.

The Administration, contending that the system can survive the crisis by making better use of its $12 billion in reserves, originally opposed granting even standby federal assistance. However, a provision added at the last minute by both the Senate and House apparently has eliminated Administration objections.

That provision would subject any proposed bail-out to the congressional appropriations process. Originally, both bills would have given the Treasury secretary unlimited authority to buy bonds from the system if self-help measures proved to be inadequate.

Rep. E. Thomas Coleman of Missouri, the top-ranking Republican on the House Agriculture credit subcommittee, said that backup federal aid is essential to restoring the confidence of Wall Street investors whose purchases of system securities provide loan funds for farmers.

The system’s troubles have driven up interest rates on the bonds, which in turn has increased interest rates on farmer loans.

Rep. John J. LaFalce (D-N.Y.), chairman of a key House Banking subcommittee, vigorously opposed the aid provision, saying that it opened the door to unlimited help. He called for delaying action until February, when an independent audit of the system’s finances is scheduled to have been completed.

The legislation would give new authority for the system to shift reserves from relatively prosperous institutions to those on the verge of bankruptcy.

A key provision would create a Farm Credit System Capital Corp. to act as a “financial warehouse” for bad loans throughout the system of more than 800 federal land banks, intermediate credit banks, banks for cooperatives and production credit associations. The new warehousing entity would have the power to draw on the reserves of the entire system while it restructured or liquidated bad loans.

Currently, because capital reserves and borrower stock are controlled on the local level, pooling the resources of healthy banks to help cover the losses of distressed institutions has proved time consuming and costly.

The legislation also would strengthen the Farm Credit Administration, a federal agency that supervises the system. The FCA would be taken out of day-to-day management of the system’s activities and become an “arm’s-length” regulator instead. Its new powers would be similar to those of the Federal Deposit Insurance Corp., which oversees commercial banks.